The Brexit vote sent shockwaves around the financial world in June. With the pound having hit a 30-year low immediately following the vote to leave the European Union, worries among ordinary investors were only natural. A number of investment funds that are popular with ISA investments lost approximately 5% of their value following the EU referendum. Banks and firms in the homebuilder industry tumbled in value. However, as unsettling as an event like this can seem, experienced investors recognise that markets do recover.
The decision to exit the EU has, in many respects, plunged us into the unknown, yet it has produced some unexpectedly positive results. For example, early reports on pension fund figures in the immediate aftermath of the vote suggested that they’d been largely unaffected by the drop in markets, with some even increasing in value. The reason for this, in part, is that a typical workplace pension invests in overseas shares as well as UK shares. While stocks plummeted around the world, the losses were more than made up for by the drop in sterling, making those holdings relatively more valuable.
However, not all pension investments have fared so well, and in these turbulent times, Independent Financial Advisers are there to help analyse how the volatility in the markets is affecting your investments.
Head of pensions at Fidelity International, Richard Parkin, explained that pensions are just one of many areas where it is just too early to predict Brexit’s long-term effect. Predictions that interest rates would rise following a Brexit vote have been proved wrong, at least for now, with the Bank of England lowering the rate from 0.5% to 0.25% in August. Senior economist at the Council of Mortgage Lenders, Mohammad Jamei, says that despite the lowering of interest rates, lending for property investment will be driven more by remortgages than by buying and selling properties over the next six months while buyers and sellers wait for a clearer picture on which way everything’s going.
Things don’t seem to be very clear yet. For example, despite surveys showing a drop in consumer confidence immediately following the vote, consumer spending increased by 1.4% in July, more than making up for the decline of 0.9% in June. While some analysts have attributed the increase to temporary factors such as the good weather we’ve enjoyed during July and the cheaper pound encouraging visitors from overseas to spend more, it has still contributed to an increase in the value of the pound against the dollar and the euro.
Employer confidence doesn’t seem to have been hit either, with unemployment figures dropping a little as at the 14th July, although job losses are not yet showing in the count of those claiming unemployment benefit.
Uncertainty is likely to be compounded, as we have yet to see what happens once the government initiates the two-year process of leaving the EU and what will happen when that process is complete. In the meantime, it makes sense for investors not to panic, take professional investment advice and avoid unnecessary risks.